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South Korea Oct inflation hits 11-mth high as consumption recovers

Tue, Nov 03, 2015 - 7:48 AM

South Korea's annual inflation in October accelerated to its highest in 11 months to reflect an ongoing recovery in consumption, government data showed on Tuesday, easing the pressure for an immediate rate cut by the central bank.

PHOTO: BLOOMBERG

[SEOUL] South Korea's annual inflation in October accelerated to its highest in 11 months to reflect an ongoing recovery in consumption, government data showed on Tuesday, easing the pressure for an immediate rate cut by the central bank.

The consumer price index rose 0.9 per cent in October from a year earlier, Statistics Korea data showed, up from a 0.6 per cent increase in September. It was the fastest rise since a 1.0 per cent gain in November last year.

The result beat a median 0.8 per cent rise tipped in a Reuters survey. "This shows inflation is now just starting to leave the bottom although it doesn't indicate price pressures are back where they were before," said David Kim, an economist at Daishin Securities in Seoul.

Kim said the central bank was unlikely to cut interest rates soon in light of recent data.

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Core inflation, which strips out volatile food and fuel prices, also accelerated in October, rising 2.3 per cent annually from a 2.1 per cent rise in September to stand at its highest since February this year.

Policy makers have been touting a firm rebound in private consumption thanks to government stimulus.

Tuesday's data showed services rose 2.1 per cent in October on-year, the highest since a 2.3 per cent rise in February 2012.

Recent indicators like factory output for September, which stood at a three-month high, have pushed some economists to upwardly revise their views on future central bank moves.

Tim Condon at ING said in a note on Friday that the bar for further easing at the Bank of Korea is high, suggesting interest rates will be on hold at the current 1.50 per cent for the rest of the year.

Barclays said on Monday it has delayed its rate cut timing forecast from the fourth quarter of this year to the first quarter of 2016 while Nomura sees risks to its baseline call for a cut later this month.